<PAGE>   1
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  20549

FORM 10-K

(Mark One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

For the fiscal year ended  JUNE 30, 2000
                          -----------------------------------------------------


                                       OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

For the transition period from                     to
                               -------------------     ------------------------

Commission file number                      001-8988
                          -----------------------------------------------------

                             ECC INTERNATIONAL CORP.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                23-1714658
---------------------------------     ---------------------------------------
   (State of other jurisdiction                 (I.R.S. Employer
of incorporation or organization)     (I.R.S. Employer Identification Number)

2001 WEST OAK RIDGE ROAD, ORLANDO, FLORIDA                 32809-3803
------------------------------------------           ---------------------------
 (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code       (407) 859-7410
                                                   -----------------------------

Securities registered pursuant to Section 12(b) of the Act:

     Title of each class             Name of each exchange on which registered
COMMON STOCK, $.10 PAR VALUE                  NEW YORK STOCK EXCHANGE
------------------------------       -------------------------------------------

 RIGHTS TO PURCHASE SERIES B JUNIOR PARTICIPATING
         PREFERRED STOCK, $.10 PAR VALUE               NEW YORK STOCK EXCHANGE
--------------------------------------------------  ----------------------------

           Securities registered pursuant to Section 12(g) of the Act:

                                      NONE
--------------------------------------------------------------------------------
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] YES [ ] NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of September 15, 2000, the aggregate market value of the Registrant's Common
Stock held by non-affiliates of the Registrant was $19,583,211. (This figure was
computed on the basis of the closing price for the Registrant's Common Stock on
September 15, 2000 using the number of shares held by stockholders who are not
officers, directors or record holders of 10% or more of the Registrant's
outstanding Common Stock. The characterization of such officers, directors and
10% stockholders as affiliates is for purposes of the computation only and
should not be construed as an admission for any purpose whatsoever that any of
such persons are, in fact, affiliates of the Registrant.)

As of September 15, 2000, there were 8,138,967 shares of the Registrant's Common
Stock, $0.10 par value per share, issued and outstanding.

Information with respect to directors in Item 10 and the information required by
Items 11-13 is incorporated by reference to the definitive proxy statement of
the Registrant to be filed with the Commission in connection with its Annual
Meeting of Stockholders scheduled for November 8, 2000.

The Exhibit Index is located on pages 42 through 47.


<PAGE>   2


PART I

ITEM 1        BUSINESS

(A)      GENERAL DEVELOPMENT OF BUSINESS

     (1)          ECC International Corp, a Delaware corporation organized in
                  1969 (the "Company"), designs, manufactures and markets
                  computer-controlled simulators used primarily for training
                  personnel to perform maintenance and operator procedures on
                  military weapons systems. The Company's simulators measure
                  performance as a trainee operates the equipment, conducts
                  equipment tests, diagnoses programmed malfunctions and takes
                  corrective actions. The Company's equipment is used by all
                  four branches of the U.S. Department of Defense as well as
                  numerous foreign governments for familiarization, operator
                  training and maintenance training for aircraft, missiles,
                  submarines, surface ships, tanks, combat vehicles and radar
                  systems. The Company's systems also have application in
                  industrial and vocational training programs, such as control
                  room simulators for power plants and law enforcement training.

                  The Company also offers training and educational products to
                  purchasers of its simulators and to others. These products
                  consist of the development of training programs and curricula,
                  development of multi media programs and computer-based
                  training, preparation of training handbooks and instruction on
                  the use of the Company's simulators.

                  The Company designs and manufactures substantially all of the
                  components of its simulator systems, with the exception of
                  certain equipment such as commercially available computers,
                  CRTs, disk drives and printers, which it purchases. The
                  Company is not dependent on any one supplier for raw materials
                  or computer related equipment used in or sold as part of its
                  systems. The Company's systems are marketed through a direct
                  sales force and by independent international sales
                  representatives.

                  During fiscal year 1999, the Company completed the wind-down
                  of its UK subsidiary, ECC Simulation Limited (the "UK
                  operation"). (See Note 14 to the Consolidated Financial
                  Statements.)

                  During fiscal year 1998, the Company completed the sale of the
                  fixed assets, inventory and trade receivables of the Company's
                  vending operation. The sale of the vending operation was
                  accounted for as a discontinued operation and accordingly, the
                  vending operations were segregated in the accompanying
                  Selected Financial Data and Consolidated Statements of
                  Operations. (See Note 15 to the Consolidated Financial
                  Statements.)


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     (2)          Not applicable

(B)      FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

         With the sale of the vending operation, the Company operates in one
         segment-training. This segment includes the design and manufacture of
         training simulators and the development of training programs and
         curricula. (See Note 11 to the Consolidated Financial Statements.)

(C)      NARRATIVE DESCRIPTION OF BUSINESS

     (1)    (i)   Principal Products, Services and Revenue Sources

                  See the information set forth above in Item 1(a) and (b) and
                  following in Item (c)(1)(iv)

           (ii)   New Products

                  Not applicable

          (iii)   Raw Materials

                  The components used in training systems, as well as the parts
                  used to manufacture the computers and devices used in the
                  Company's systems are purchased from original equipment
                  manufacturers, electronics supply firms and others. The
                  Company has no reason to believe that it cannot continue to
                  obtain such components, or suitable substitutes, as it may
                  require.

           (iv)   Patents, Trademarks, Licenses, Franchises and Concessions

                  Not applicable

            (v)   Seasonality of Business

                  The Company's business is not seasonal in nature.

           (vi)   Working Capital Practices

                  The Company's working capital practices are similar to other
                  government contractors.


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<PAGE>   4


          (vii)   Dependence on Customer

                  The Company's training business is government-related and
                  channeled to the Company principally through the Department of
                  Defense. For the fiscal year ended June 30, 2000, 11% of sales
                  were made directly to the U.S. Department of Defense, while an
                  additional 89% of sales were made to various other contractors
                  for ultimate use by the U.S. Department of Defense. Within the
                  U.S. Department of Defense, there are various agencies that
                  are "customers" of the Company, with the largest being the
                  U.S. Navy. (See Note 11 to the Consolidated Financial
                  Statements.)

         (viii)   Backlog

                  At June 30, 2000, the Company's backlog (which represents that
                  portion of outstanding contracts not yet included in revenue)
                  was approximately $86 million of which $64 million represented
                  contract options. At June 30, 1999, the Company's backlog was
                  $115 million of which $84 million represented contract
                  options. It is anticipated that over 96% of the backlog,
                  exclusive of contract options, at June 30, 2000 will be
                  delivered during fiscal year ending June 30, 2001.

           (ix)   Renegotiation or Termination of Contracts or Subcontracts at
                  Government's Election

                  The Company's government contracts contain standard terms
                  permitting termination without cause at the option of the
                  government. In the event of termination of such contracts, the
                  Company is entitled to receive reimbursement on the basis of
                  work completed (cost incurred plus a reasonable profit).

            (x)   Competitive Conditions

                  The Company is in competition with a large number of firms.
                  Many of the Company's competitors are substantially larger and
                  have greater financial resources. Competition is based upon
                  both price and performance considerations. Positive factors
                  pertaining to the Company's competitive position are that the
                  Company has a large base of installed systems and
                  substantially more experience than its competitors in the
                  computer-controlled maintenance simulation field. The Company
                  believes that this defense segment continues to have growth
                  potential and expects to see new competitors in this market.

           (xi)   Independent Research and Development (IR&D)

                  During the fiscal years ended June 30, 2000, 1999, and 1998,
                  approximately $376,000, $803,000 and $2,758,000, respectively,
                  was spent on Company-sponsored research activities, including
                  manufacturing, engineering and software development relating
                  to the development of new products and product enhancements.
                  During fiscal year 2000, the Company had no customer-sponsored
                  research activities. There was one customer-sponsored research
                  activity related to engagement skill trainers during fiscal
                  year 1999. During the fiscal year ended June 30, 2000, the


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                  Company employed the equivalent of two full-time professional
                  employees whose prime responsibility is in research and
                  development activities. In addition to this full-time research
                  and development staff, from time to time the Company utilizes
                  the specialized skills of many of its other employees and
                  contract personnel on a limited engagement basis.

          (xii)   Environment

                  The Company has nothing to report under this caption.

         (xiii)   Number of Persons Employed

                  As of June 30, 2000, the Company employed approximately 308
                  persons.

(D)      FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
         SALES

         Export sales were immaterial to the Company's gross sales. (See Note 11
         to the Consolidated Financial Statements.)

ITEM 2   PROPERTIES

The Company owns its simulation development and manufacturing facilities, which
are situated on 25 acres in Orlando, Florida. The main plant facility totals
398,086 square feet. Ancillary buildings on the property total 66,100 square
feet. The Company sub-leases the 72,500 square foot facility previously used by
the vending operation.

ITEM 3   LEGAL PROCEEDINGS

Currently, the Company is not a party to any material pending legal proceedings.
The Company was a party to legal proceedings which were settled and accounted
for prior to fiscal year 2000 and which are disclosed in Note 2 to the
Consolidated Financial Statements.

ITEM 4   SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

There was no vote of security holders during the fourth quarter of the fiscal
year.



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<PAGE>   6


EXECUTIVE OFFICERS AND KEY MANAGEMENT EMPLOYEES OF THE REGISTRANT

Each of the following officers and key management employees of the Company has
been elected by the Board of Directors and serves at the discretion of the
Board.
<TABLE>
<CAPTION>


NAME                                  AGE            POSITION WITH THE REGISTRANT                  OFFICER SINCE
----                                  ---            ----------------------------                  -------------
<S>                                   <C>            <C>                                                  <C>
Dr. James C.  Garrett                 55             President, Chief Executive                           1998
                                                     Officer and Director

Glenn C. Andrew                       52             Executive Vice President,                            1998
                                                     Chief Operating Officer

Melissa A. Van Valkenburgh            46             Vice President, Finance                              1999
                                                     Chief Financial Officer

Dr. Charles B. Engle, Jr.             50             Vice President, Engineering                          1999
                                                     Chief Technical Officer

Stephen R. Stankiewicz                51             Vice President, Business Development                 2000
</TABLE>


Dr. Garrett assumed his position in June 1998; Mr. Andrew assumed his position
in October 1998; Ms. Van Valkenburgh assumed her position in March 1999; Dr.
Engle assumed his position in August 1999 and Mr. Stankiewicz assumed his
position in May 2000.

DR. GARRETT has had an extensive career in the defense and aerospace industries
spanning over 29 years. Prior to joining ECC, he served as Vice President and
General Manager of the Raytheon E-Systems Communications Division, a position to
which he was named in 1991, with responsibility for a broad range of projects.
During the course of a 20 year career with Rockwell International
Corporation, Dr. Garrett served as Vice President of the Command and Control
Systems, Satellite and Secure Systems, Tactical Products and Engineering
Divisions.

MR. ANDREW was with Rockwell International for 25 years, most recently as Vice
President and General Manager of the Communications Systems Division in Dallas,
Texas. In 1996, he was charged with putting a recovery plan in place for
Rockwell's combat systems for Australia. Mr. Andrew also served as director of
Rockwell's satellite communications business area and held various engineering
positions, including Director of Engineering.

MS. VAN VALKENBURGH is a Certified Public Accountant who most recently was
Controller of Applied Materials Incorporated at their Austin, Texas site. She
previously served for 17 years at Rockwell International where she was
Controller of several of its Defense Electronic Divisions. Prior to that, she
worked in public accounting with Deloitte & Touche for 5 years.


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<PAGE>   7

DR. ENGLE most recently worked as a software consultant to various commercial
and government customers. He was also Vice President, North America, for Q-Labs
Inc., an operation of LM Ericsson. Prior to that, he served as technical
director of the Defense Information System Agency's Center for Computer Systems
Engineering. He is a retired Army Officer and aviator as well as a graduate of
Brooklyn Polytechnic University, where he received his Ph.D. in computer
science.

MR. STANKIEWICZ most recently served as Director of Marketing for AAI
Corporation. He previously served as Director of Government Programs at Evans &
Sutherland Computer Corporation. He also served as a naval flight officer in the
U.S. Navy Reserve.



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<PAGE>   8


PART II

ITEM 5   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
         MATTERS

(a)      MARKET INFORMATION

The Common Stock of the Company is listed on the New York Stock Exchange (symbol
ECC). The price range of the Common Stock during the last two fiscal years was
as follows:

QUARTER ENDED                           HIGH                  LOW
-------------                           ----                  ---

June 30, 2000                         $ 3.75                $ 3.00
March 31, 2000                          4.00                  3.06
December 31, 1999                       3.81                  3.06
September 30, 1999                      4.19                  3.06
June 30, 1999                           3.94                  2.63
March 31, 1999                          2.94                  2.13
December 31, 1998                       3.00                  1.63
September 30, 1998                      3.38                  1.56

Common Stock prices shown above are the last daily sales prices on the New York
Stock Exchange.

(b)      HOLDERS

As of September 15, 2000, the Company had approximately 916 stockholders of
record of its Common Stock based on the transfer agent's listings. The Company
believes its shares are beneficially held by several thousand additional
stockholders based on broker dealer demand for proxy materials in 1999.

(c)      DIVIDENDS

No cash dividends have been declared on the Company's common stock during the
last five years. Under the Company's Credit Facility, the Company is not
permitted to pay cash dividends. (See Note 7 to the Consolidated Financial
Statements.)



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ITEM 6     SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>

OPERATING DATA:                                                       YEARS ENDED JUNE 30
                                            -------------------------------------------------------------------
CONTINUING OPERATIONS:                      2000           1999            1998            1997            1996
                                            ----           ----            ----            ----            ----
<S>                                    <C>            <C>             <C>             <C>             <C>
Net Sales                              $  40,876      $  48,676       $  52,618       $  72,550       $ 101,713
Operating Income/(Loss)                $   3,985      $  (3,874)      $ (13,775)      $  (3,510)      $   7,929
Net Income/(Loss)                      $   3,389      $  (3,546)      $ (12,409)      $  (4,584)      $   4,232

DISCONTINUED OPERATIONS:
Net Sales                              $      --      $      --       $      --       $  10,540       $  15,443
Operating Income/(Loss)                $      --      $      --       $      --       $  (5,830)      $  (1,922)
Net Income/(Loss)                      $      --      $      --       $    (407)      $  (3,951)      $  (1,354)

PER SHARE DATA BASIC:
Weighted Average Number of
   Common Shares Outstanding               8,436          8,346           8,174           7,916           7,732
Earnings/(Loss) Per Common Share
   Continuing Operations               $    0.40      $   (0.42)      $   (1.52)      $   (0.58)      $    0.55
Earnings/(Loss) Per Common Share
   Discontinued Operations                    --             --           (0.05)          (0.50)          (0.18)
                                       ---------      ---------       ---------       ---------       ---------
Earnings/(Loss) Per Common Share       $    0.40      $   (0.42)      $   (1.57)      $   (1.08)      $    0.37
                                       =========      =========       =========       =========       =========
Cash Dividends                         $      --      $      --       $      --       $      --       $      --
                                       =========      =========       =========       =========       =========

PER SHARE DATA-ASSUMING DILUTION:
Weighted Average Number of
   Common Shares Outstanding               8,485          8,346           8,174           7,916           7,950
Earnings/(Loss) Per Common Share
   Continuing Operations               $    0.40      $   (0.42)      $   (1.52)      $   (0.58)      $    0.53
Earnings/(Loss) Per Common
   Share Discontinued Operations              --             --           (0.05)          (0.50)          (0.17)
                                       ---------      ---------       ---------       ---------       ---------
Earnings/(Loss) Per Common Share       $    0.40      $   (0.42)      $   (1.57)      $   (1.08)      $    0.36
                                       =========      =========       =========       =========       =========


OPERATING DATA:                                                       AS OF JUNE 30
                                            -------------------------------------------------------------------
CONTINUING OPERATIONS:                      2000           1999            1998            1997            1996
                                            ----           ----            ----            ----            ----
Total Assets                           $  39,235      $  48,713       $  64,358       $  82,034       $  95,397
Working Capital                        $  17,921      $  13,063       $  11,385       $  35,357       $  44,236
Long-Term Debt                         $      --      $      --       $      --       $  16,640       $  18,706
Stockholders' Equity                   $  33,689      $  30,087       $  33,437       $  45,546       $  52,875


</TABLE>



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As a result of the Company's sale of its vending operation during fiscal year
1998, the vending operation was accounted for as a discontinued operation
beginning in fiscal year 1997. Accordingly, the vending operation was segregated
in the Consolidated Statements of Operations and prior years were reclassified.

ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITIONS
          AND RESULTS OF OPERATIONS

(A) (1) AND (2) LIQUIDITY AND CAPITAL RESOURCES

During fiscal year 2000, the Company's principal sources of cash were
collections on accounts receivable. The principal uses of these funds were to
paydown the revolving Credit Facility, make investments in capital assets, make
lease termination and contract novation payments, and to make vendor and payroll
payments. In the prior fiscal year, the Company's principal sources of cash were
receipts on accounts receivable, federal tax refunds, proceeds from the sale of
real estate, cash surrender of life insurance policies for terminated employees
and refunds on deposits. The principal uses of funds in fiscal year 1999 were to
paydown the Credit Facility, make vendor, severance and lease termination
payments and fund improvements to the Orlando facility.

Accounts receivable increased primarily due to several new contracts and
follow-on work to existing contracts including the Closed Combat Tactical
Trainer (CCTT), F-18, UK CATT and the Raytheon/Lockheed Martin Javelin Joint
Venture (Javelin), as well as increased deliveries due to the completion of
several on-going contracts. In the prior fiscal year, accounts receivable
decreased primarily due to the receipt of payments on the Company's domestic
training contracts including CCTT, Javelin, F-18, C-17 and Saudi Vigs programs.

Costs and estimated earnings in excess of billings on uncompleted contracts
decreased primarily due to the completion of several contracts including the
CCTT and the Javelin, as well as new contract awards in June of fiscal year
2000. During the prior fiscal year, costs and estimated earnings in excess of
billings on uncompleted contracts increased primarily due to progress on
domestic operation programs partially offset by the wind-down of the UK
operation. (See Note 14 to the Consolidated Financial Statements.)

Raw material inventory decreased due to the increase in inventory reserves for
aged inventory.

Accounts payable decreased primarily due to improved payment cycles supported by
the Credit Facility and collections on accounts receivable. Accounts payable
decreased in the prior fiscal year, primarily due to the UK operation's novation
of a contract to Lockheed Martin ASIC (Lockheed), as well as improved accounts
payable aging in the domestic operation. (See below and Note 5 to the
Consolidated Financial Statements.)

During fiscal year 2000, there were no advances on long-term contracts. During
the prior fiscal year, advances on long-term contracts decreased primarily due
to the UK operation's novation of a contract to Lockheed and the wind-down of
its operations. (See below and Note 5 to the Consolidated Financial Statements.)


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<PAGE>   11



On December 10, 1998, the UK operation entered into a Novation Agreement with
Lockheed. Under the agreement, the UK operation assigned all rights and
obligations under a certain contract to Lockheed. The terms of the novation
permit the UK operation to extend payments, already owing to Lockheed, to
monthly installments through December 2000. At June 30, 2000, the total
outstanding due to Lockheed was approximately $1.2 million, which is included in
Accrued Expenses and Other.

On June 24, 1999 the Company entered into a new revolving credit facility
("Credit Facility") with Mellon Bank, N. A. totaling $12.5 million and expiring
on June 24, 2003. Proceeds from the Credit Facility were used to pay the
outstanding balance under the Company's loan facility with its previous primary
lender. There was no outstanding balance under the Credit Facility at June 30,
2000. (See Note 7 to the Consolidated Financial Statements.) Available
borrowings, which are based on a formula of receivables and property as defined
in the Credit Facility, were $7.4 million at June 30, 2000.

The increase in capital in excess of par at June 30, 2000 and June 30, 1999 was
primarily the result of the sale of stock under employee stock purchase plans
and the issuance of shares under the Director's Equity Plan.

The Company anticipates spending approximately $1.0 million for new machinery
and equipment and to continue to refurbish the Orlando facility during fiscal
year 2001.

During fiscal year 1999, the Company implemented various cost reduction
initiatives and changes in management including the relocation of the corporate
headquarters and Instructional Systems Development Group from Wayne,
Pennsylvania to the Company's principal Systems Design and Production Center in
Orlando, Florida. In addition, as a result of recurring net losses in the UK
operation ($2.7 million and $7.9 million in fiscal years 1999 and 1998,
respectively), the Board of Directors announced, during the first quarter of
fiscal year 1999, the approval of a plan to wind-down and discontinue the UK
operation. The wind-down was completed in May 1999. These initiatives resulted
in a non-recurring charge of approximately $3.5 million during fiscal year 1999.
(See Note 14 to the Consolidated Financial Statements.)

In addition, during fiscal year 1999, the Company made payments totaling
approximately $4.3 million on its former Credit Facility and as discussed above,
refinanced the outstanding balance of $6.8 million on June 24, 1999 with a new
lender. (See Note 7 to the Consolidated Financial Statements.)

Management's plans to improve future profitability include: (1) a continuation
of both direct and indirect cost reduction initiatives and improvement of
operating performance, (2) an aggressive focus on obtaining follow-on awards to
existing business, and (3) the implementation of strategies to procure new
business and penetrate new markets.

Other than as stated above, the Company has no other material commitments for
capital expenditures. Management believes that with the funds available under





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<PAGE>   12


its new Credit Facility and its projected cash flow, the Company will have
sufficient resources to meet planned operating commitments for the foreseeable
future.

In keeping in line with current corporate governance practices and the goal to
increase shareholder value, on August 9, 2000 the Board of Directors terminated
the Rights Agreement dated as of August 27, 1996 between the Company and Mellon
Bank, N.A., as amended (the "Rights Agreement") and to redeem all outstanding
rights ("the Rights"). Pursuant to the terms of the Rights Agreement, on
September 1, 2000 all stockholders of record at the close of business on August
9, 2000 received $0.01 for each Right held. The Board also approved a stock
repurchase plan to invest up to $3,000,000 for the repurchase of the Company's
common stock. Approval to execute this plan was obtained from Mellon Bank, N.A.
under the Company's Credit Facility.

(3)  RESULTS OF OPERATIONS

2000 COMPARED WITH 1999

Net Sales decreased 16% for fiscal year 2000 as compared to fiscal year 1999.
The decrease is primarily due to reduced activity in the UK resulting from the
wind-down of operations in fiscal year 1999. (See Notes 11 and 14 to the
Consolidated Financial Statements.)

Gross margin as a percentage of net sales increased to 33% in fiscal year 2000
as compared to 25% in fiscal year 1999. The increase is primarily the result of
increased gross margin levels in several contracts including Javelin, F-18 and
UK CATT. In addition, the Company's cost reduction initiatives during fiscal
year 2000 reduced overhead costs, thus improving gross margins.

Selling, general and administration expense decreased 22% in fiscal year 2000 as
compared to fiscal year 1999. The decrease is primarily the result of continued
cost containment initiatives during fiscal year 2000 as well as the completion
of the UK operations wind-down during fiscal year 1999. (See Note 14 to the
Consolidated Financial Statements.) Additionally, the Company's legal and bad
debt expenses were significantly lower in fiscal year 2000 due to the settlement
of the Company's Economic Price Adjustment claim in the fourth quarter of fiscal
year 1999. (See Note 2 to the Consolidated Financial Statements.)

Independent Research and Development (IR&D) expense decreased by 53% in fiscal
year 2000 as compared to fiscal year 1999. This decrease was primarily a result
of more focused initiatives and cost containment efforts.

Non-Recurring expenses decreased to zero as compared to fiscal year 1999 as a
result of recognizing approximately $3.5 million in expenses during fiscal year
1999 relating to the UK operation wind-down and relocation of the Company
headquarters. (See Note 14 to the Consolidated Financial Statements.)




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<PAGE>   13


Interest expense decreased 31% as compared to fiscal year 1999 as a result of
improved cash flows from operations. During the fourth quarter of fiscal year
2000, the Company was able to pay off the outstanding balance under the
Company's Credit Facility.

1999 COMPARED WITH 1998

Net Sales decreased 7% for fiscal year 1999 as compared to fiscal year 1998. The
decrease is primarily the result of reduced activity in the UK operation related
to its wind-down. (See Note 11 and 14 to the Consolidated Financial Statements.)
Partially offsetting the decrease was progress on existing domestic operation
programs including Javelin, CCTT LRIP, F-18 E/F, Engagement Skills Trainers
(EST), as well as several additions to other ongoing contracts.

Gross margin as a percentage of net sales increased to 25% in fiscal year 1999
as compared to 7% in fiscal year 1998. Domestic training contract gross margin
levels improved as a result of the completion of many large "cost plus" type
contracts which have historically had lower gross margins than the "fixed price"
type as well as improved performance on existing programs. In addition, the
Company's cost reduction initiatives during fiscal year 1999 reduced overhead
costs, thus improving gross margins. The gross margin in the UK operation also
improved over the prior fiscal year as a result of the accrual for loss
contracts recorded at June 30, 1998.

Selling, general and administrative expense decreased 13% in fiscal year 1999 as
compared to fiscal year 1998. The decrease is primarily the result of cost
containment initiatives, closure of the corporate headquarters in Wayne,
Pennsylvania and the completion of the wind-down of the UK operation. Partially
offsetting these decreases were costs related to increased utilization of
consulting services related to marketing, refinancing of debt, outplacement and
executive search services and increased legal fees.

Independent Research and Development (IR&D) expense decreased 71% in fiscal year
1999 as compared to fiscal year 1998. This decrease was primarily a result of
more focused initiatives, cost containment efforts and continuation of IR&D
costs now included as part of the EST contract and recorded in cost of sales
since the award of the contract in the second quarter of fiscal year 1999.

As a result of recurring losses in the UK operation, the Board of Directors
announced, during the first quarter of fiscal year 1999, the approval of a plan
to wind-down and discontinue the UK operation. The wind-down was completed in
May 1999. In addition, on September 30, 1998, the Company relocated its
corporate headquarters staff and Instructional Systems Development Group from
Wayne, Pennsylvania to the Company's principal Systems Design and Production
Center in Orlando, Florida. As a result of the wind-down of the UK operation and
the relocation of the corporate headquarters, the Company recorded charges of
approximately $3.5 million during fiscal year 1999. These charges primarily
relate to employee termination benefits and lease termination costs. (See Note
14 to the Consolidated Financial Statements.)

Interest expense decreased 7% in fiscal year 1999 as compared to fiscal year
1998 primarily due to payments made on the previous Credit Facility of $4.3
million.




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<PAGE>   14


Net loss decreased $9.3 million in fiscal year 1999 compared to fiscal year 1998
primarily due to the Company's cost cutting initiatives, wind-down of the UK
operation and relocation of the corporate headquarters. The $3.5 million net
loss is comprised of a $2.7 million loss in the UK operation and an $800,000
loss in the domestic operation. The net loss includes $3.5 million of
non-recurring expenses ($2.4 million in the UK operation and $1.1 million in the
domestic operation) associated with the wind-down of the UK operation and the
relocation of the corporate headquarters as discussed above.

DISCONTINUED OPERATIONS

On November 25, 1997, the Company completed the sale of the fixed assets,
inventory and trade receivables of the Company's vending operation. Proceeds
from the sale of the vending operation were used to reduce the Company's debt.
(See Note 15 to the Consolidated Financial Statements.) Operating results have
been segregated in the accompanying Consolidated Financial Statements of
Operations.

During fiscal year 1998, the Company recorded an additional provision for the
estimated loss on disposal of discontinued operations of $407,000, after tax.
The change in the estimated loss resulted primarily from additional costs
associated with the consummation of the sale of the fixed assets, inventory and
trade receivables of the vending operation.

CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Annual Report on Form 10-K and presented elsewhere by management from time
to time.

A number of uncertainties exist that could affect the Company's future operating
results including, without limitation, general economic conditions, changes in
government spending, cancellation of weapons programs, delays in contract
awards, delays in the acceptance process of contract deliverables, the Company's
continued ability to develop and introduce products, the introduction of new
products by competitors, pricing practices of competitors, the cost and
availability of parts and the Company's ability to control costs.

To date a substantial portion of the Company's revenues have been attributable
to long-term contracts with various government agencies. As a result, any factor
adversely affecting procurement of long-term government contracts could have a
material adverse effect on the Company's financial condition and results of
operations.

Because of these and other factors, past financial performance should not be
considered an indication of future performance. The Company's future operating
results may vary significantly. Investors should not use historical trends to
anticipate future results and should be aware that the trading price of the
Company's Common Stock may be subject to wide fluctuations in response to
quarterly variations in operating results and other factors, including those
discussed above.



                                       14
<PAGE>   15


ITEM 7A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has a variable rate revolving credit facility and, as such, has
exposure to interest rate fluctuations. Under current market conditions, the
impact of an increase or decrease in the prevailing interest rates would not
materially effect the Company's consolidated financial position or results of
operations. As of June 30, 2000, there was no outstanding balance under the
revolving credit facility.



                                       15
<PAGE>   16


ITEM 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                     PAGE(S)
                                                                                               -------
<S>                                                                                              <C>
Report of Independent Certified Public Accountants                                               17

Consolidated Statements of Operations for the Years
Ended June 30, 2000, 1999 and 1998                                                               18

Consolidated Statements of Comprehensive Income/(Loss) for the Years                             19
Ended June 30, 2000, 1999 and 1998

Consolidated Balance Sheets as of June 30, 2000 and 1999                                         20

Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 2000, 1999 and 1998                                                 21-22

Consolidated Statements of Cash Flows for the Years
Ended June 30, 2000, 1999 and 1998                                                               23-24

Notes to Consolidated Financial Statements                                                       25-40
</TABLE>



                                       16
<PAGE>   17






               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders and the Board of Directors of ECC International Corp.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income/(loss),
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of ECC International Corp. and its Subsidiaries (the
"Company") at June 30, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2000
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.


/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Orlando, Florida
August 11, 2000



                                       17
<PAGE>   18
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 2000, 1999 and 1998
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>

                                                                    2000           1999           1998
                                                                  --------       --------       --------
<S>                                                               <C>            <C>            <C>
Net Sales                                                         $ 40,876       $ 48,676       $ 52,618

Cost of Sales                                                       27,386         36,549         48,915
                                                                  --------       --------       --------
Gross Profit                                                        13,490         12,127          3,703
                                                                  --------       --------       --------
Expense:
   Selling, General & Administrative                                 9,129         11,747         13,452
   Independent Research and Development                                376            803          2,758
   Non-Recurring Expenses                                               --          3,451             --
   Impairment of Fixed Assets                                           --             --          1,268
                                                                  --------       --------       --------
      Total Expense                                                  9,505         16,001         17,478
                                                                  --------       --------       --------
Operating Income/(Loss)                                              3,985         (3,874)       (13,775)
                                                                  --------       --------       --------
Other Income/(Expense):
   Interest Income                                                     151            312            274
   Interest Expense                                                   (727)        (1,052)        (1,129)
   Other-Net                                                           (20)            (3)            26
                                                                  --------       --------       --------
      Total Other Expense                                             (596)          (743)          (829)
                                                                  --------       --------       --------
Income/(Loss) from Continuing Operations
   Before Income Taxes                                               3,389         (4,617)       (14,604)
Benefit for Income Taxes                                                --         (1,071)        (2,195)
                                                                  --------       --------       --------
Income/(Loss) from Continuing Operations                             3,389         (3,546)       (12,409)
                                                                  --------       --------       --------

Discontinued Operations (Note 15):
   Loss on Disposal (net of income taxes of $162)                       --             --           (407)
                                                                  --------       --------       --------
Net Income/(Loss)                                                 $  3,389       $ (3,546)      $(12,816)
                                                                  ========       ========       ========

Income/(Loss) Per Common Share-Basic and Assuming Dilution:
   Income/(Loss) Per Common Share from Continuing Operations      $   0.40       $  (0.42)      $  (1.52)
   Income/(Loss) Per Common Share from
      Discontinued Operations                                           --             --          (0.05)
                                                                  --------       --------       --------
Net Income/(Loss) Per Common Share                                $   0.40       $  (0.42)      $  (1.57)
                                                                  ========       ========       ========
</TABLE>


           See accompanying notes to consolidated financial statements




                                       18

<PAGE>   19

ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
For the Years Ended June 30, 2000, 1999 and 1998
(In Thousands)
<TABLE>
<CAPTION>

                                                               2000          1999           1998
                                                             --------      --------       --------
<S>                                                          <C>           <C>            <C>
Net Income/(Loss)                                            $  3,389      $ (3,546)      $(12,816)

Other Comprehensive Expense:

   Foreign Currency Translation Adjustments, net of tax            --            --            (43)
                                                             --------      --------       --------
      Total Comprehensive Income/(Loss)                      $  3,389      $ (3,546)      $(12,859)
                                                             ========      ========       ========
</TABLE>


           See accompanying notes to consolidated financial statements




                                       19

<PAGE>   20

ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 2000 and 1999
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>

                                                                            2000           1999
                                                                          --------       --------
<S>                                                                       <C>            <C>
ASSETS
   Current:
      Cash                                                                $  2,406       $  1,485
      Accounts Receivable                                                    7,359          4,738
      Cost and Estimated Earnings in Excess of
         Billings on Uncompleted Contracts                                  10,455         18,494
      Inventories                                                            2,559          4,311
      Prepaid Expenses and Other                                               449            755
                                                                          --------       --------
         Total Current Assets                                               23,228         29,783
                                                                          --------       --------
   Property, Plant and Equipment, Net                                       15,476         18,273
   Other Assets                                                                531            657
                                                                          --------       --------
         Total Assets                                                     $ 39,235       $ 48,713
                                                                          ========       ========

LIABILITIES
   Current:
      Current Portion of Long-Term Debt                                   $     --       $  6,424
      Accounts Payable                                                       1,438          2,917
      Accrued Expenses and Other                                             3,869          7,379
                                                                          --------       --------
         Total Current Liabilities                                           5,307         16,720
                                                                          --------       --------
   Deferred Income Taxes                                                        80            507
   Other Long-Term Liabilities                                                 159          1,399
                                                                          --------       --------
         Total Liabilities                                                   5,546         18,626
                                                                          --------       --------

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
   Preferred Stock, $0.10 par; 1,000,000 shares authorized;
      none issued and outstanding                                               --             --
   Common Stock, $0.10 par; 20,000,000 shares authorized; issued and
      outstanding 8,481,067 and 8,412,165                                      848            841
   Note Receivable from Stockholder                                           (146)          (146)
   Capital in Excess of Par                                                 25,211         25,005
   Retained Earnings                                                         7,776          4,387
                                                                          --------       --------
         Total Stockholders' Equity                                         33,689         30,087
                                                                          --------       --------
         Total Liabilities and Stockholders' Equity                       $ 39,235       $ 48,713
                                                                          ========       ========

</TABLE>


           See accompanying notes to consolidated financial statements


                                       20

<PAGE>   21

ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 2000, 1999 and 1998
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>

                                                                           ACCUMULATED         NOTE
                                                 CAPITAL                       OTHER        RECEIVABLE        TOTAL
                                    COMMON      IN EXCESS      RETAINED   COMPREHENSIVE        FROM       STOCKHOLDERS'
                                     STOCK       OF PAR        EARNINGS   INCOME/(LOSS)    STOCKHOLDERS      EQUITY
                                    ------      ---------      --------   -------------    ------------   -------------

<S>                               <C>           <C>           <C>            <C>            <C>            <C>
Balance as of June 30, 1997       $    805      $ 23,935      $ 20,749       $     57       $     --       $ 45,546
Net Loss                                --            --       (12,816)            --             --        (12,816)
Stock Issued:
   Employee Stock Purchase
      Plan-79,244 Shares                 8           198            --             --             --            206
   Exercise of Options-
      7,340 Shares                       1            15            --             --             --             16
   Isuance of Common Stock-
      184,770 Shares                    18           653            --             --           (146)           525
Income Tax Reduction
   Relating to Stock Options            --             3            --             --             --              3
Translation Adjustment                  --            --            --            (43)            --            (43)
                                  --------      --------      --------       --------       --------       --------
Balance as of June 30, 1998            832        24,804         7,933             14           (146)        33,437
                                  --------      --------      --------       --------       --------       --------
Net Loss                                --            --        (3,546)            --             --         (3,546)
Stock Issued:
   Employee Stock Purchase
      Plan-59,349 Shares                 6           115            --             --             --            121
   Exercise of Options-
      2,000 Shares                      --             4            --             --             --              4
Issuance of Common Stock-
      32,558 Shares                      3            82            --             --             --             85
Translation Adjustment                  --            --            --            (14)            --            (14)
                                  --------      --------      --------       --------       --------       --------
Balance as of June 30, 1999       $    841      $ 25,005      $  4,387       $     --       $   (146)      $ 30,087
                                  --------      --------      --------       --------       --------       --------

</TABLE>

                                                                    Continued...



                                       21

<PAGE>   22

ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 2000, 1999 and 1998
(In Thousands, Except Share Data)

<TABLE>
<CAPTION>

                                                                           ACCUMULATED          NOTE
                                                   CAPITAL                    OTHER          RECEIVABLE        TOTAL
                                    COMMON        IN EXCESS   RETAINED    COMPREHENSIVE         FROM        STOCKHOLDERS'
                                     STOCK         OF PAR     EARNINGS    INCOME/(LOSS)     STOCKHOLDERS       EQUITY
                                    -------       ---------   --------    -------------     ------------   -------------

<S>                                 <C>            <C>         <C>            <C>             <C>             <C>
Net Income                          $    --        $    --     $ 3,389        $--             $    --         $ 3,389
Stock Issued:
   Employee Stock Purchase
      Plan-38,291 Shares                  4            112          --         --                  --             116
   Exercise of Options-
      3,400 Shares                       --              7          --         --                  --               7
   Issuance of Common Stock-
      27,211 Shares                       3             87          --         --                  --              90
                                    -------        -------     -------        ---             -------         -------
Balance as of June 30, 2000         $   848        $25,211     $ 7,776        $--             $  (146)        $33,689
                                    =======        =======     =======        ===             =======         =======

</TABLE>


Common Shares issued and outstanding at June 30, 1997 and 1998 were 8,046,707
and 8,318,258 shares, respectively.

           See accompanying notes to consolidated financial statements

                                       22

<PAGE>   23

ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2000, 1999 and 1998
(In Thousands)
<TABLE>
<CAPTION>

                                                                     2000           1999           1998
                                                                   --------       --------       --------
<S>                                                                <C>            <C>            <C>
Cash Flows From Operating Activities:
Net Income/(Loss)                                                  $  3,389       $ (3,546)      $(12,816)
Adjustments to Reconcile Net Income to Net Cash
    Provided by/(Used For) Operating Activities:
      Depreciation                                                    3,919          4,296          2,923
      Amortization                                                      421             --             --
      Loss/(Gain) on Sale of Assets                                      25           (209)            --
      Impairment of Fixed Assets                                         --             --          1,268
      Deferred Income Taxes                                              --         (1,467)         2,171
      Provision for Discontinued Operations                              --             --            569

Changes in Certain Assets and Liabilities:
      Accounts Receivable                                            (2,621)         3,359         (1,537)
      Cost and Estimated Earnings in Excess of
         Billings on Uncompleted Contracts                            8,039         (2,103)         9,106
      Inventories                                                     1,752            891          1,077
      Prepaid Expenses and Other                                       (329)         4,821         (1,926)
      Accounts Payable                                               (1,479)          (200)         1,417
      Advances on Long-Term Contracts                                    --         (3,277)           132
      Accrued Expenses and Other                                     (4,914)        (1,266)           179
                                                                   --------       --------       --------
Net Cash Provided By Operating Activities                             8,202          1,299          2,563
                                                                   --------       --------       --------

Cash Flows From Investing Activities:
      Proceeds from Sale of Discontinued Operation                       --             --          7,881
      Proceeds From Sale of Assets                                       18            595             --
      Additions to Property, Plant and Equipment                       (911)        (1,961)        (2,323)
      Other, Primarily Cash Surrender Value of Life Insurance            --          1,305            342
                                                                   --------       --------       --------
Net Cash (Used In)/Provided By Investing Activities                $   (893)      $    (61)      $  5,900
                                                                   --------       --------       --------

</TABLE>

                                                                    Continued...




                                       23

<PAGE>   24

ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2000, 1999 and 1998
(In Thousands)

<TABLE>
<CAPTION>

                                                               2000          1999          1998
                                                             -------       -------       -------
<S>                                                          <C>           <C>           <C>
Cash Flows From Financing Activities:
   Proceeds From Issuance of Common Stock and
      Options Exercised                                      $   123       $   125       $   237
   Debt Issue Costs for Revolving Credit Facility                (87)           --            --
   Repayments Under Term Loan                                     --            --        (2,250)
   Net Repayments Under Revolving Credit Facility             (6,424)       (4,708)       (5,508)
                                                             -------       -------       -------
Net Cash Used In Financing Activities                         (6,388)       (4,583)       (7,521)
                                                             -------       -------       -------
Net Increase/(Decrease) in Cash                                  921        (3,345)          942

Cash at Beginning of the Year                                  1,485         4,830         3,888
                                                             -------       -------       -------
Cash at End of the Year                                      $ 2,406       $ 1,485       $ 4,830
                                                             =======       =======       =======
Supplemental Disclosures of Cash Flow Information:

Cash Paid During the Year for:
   Interest                                                  $   720       $ 1,086       $ 1,105

Supplemental Schedule of Non Cash Financing Activities:

   Issuance of Employee Stock Incentives                     $    --       $    --       $   421
   Issuance of Director Equity Compensation                  $    90       $    85       $    92
   Purchase of Fixed Assets Through Capital Leases           $   254       $    --       $    --
   Note Receivable from Stockholder in Connection
      with Issuance of Common Stock                          $    --       $    --       $   146
   Extended Payment Terms in Connection with
      Novation Agreement                                     $    --       $ 4,552       $    --

</TABLE>

           See accompanying notes to consolidated financial statements




                                       24
<PAGE>   25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1     SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The consolidated financial statements include the accounts of ECC International
Corp. and its wholly owned subsidiaries (collectively, the "Company").
Intercompany transactions have been eliminated in consolidation.

As a result of the Company's sale of its vending operation during fiscal year
1998, the vending operation is reflected as a discontinued operation in the
accompanying Consolidated Statements of Operations (See Note 15 to the
Consolidated Financial Statements.)

REVENUE AND COST RECOGNITION

Contract sales and costs are recognized using the percentage of completion
method, measured by the ratio of costs incurred to date to estimated total
costs. Since many contracts extend over a long period of time, any revisions in
cost and funding estimates during the progress of work have the effect of
adjusting the current period earnings applicable to performance in prior
periods.

Contract costs include all direct labor and material costs and those indirect
costs related to contract performance, such as indirect labor, supplies and
depreciation.

Provisions for estimated losses on uncompleted contracts are made in the period
in which losses are determined. Claims are included as a component of contract
value for purposes of revenue recognition at such time as the amount to be
recognized is reasonably determinable and probable.

Costs and estimated earnings in excess of billings on uncompleted contracts
consists principally of contract revenue for which billings have not been
presented, as such amounts were not billable at the balance sheet date.
Substantially all of these amounts will be billed in the following fiscal year.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

INVENTORIES

Work in process inventory is valued using the specific identification cost
method, but not in excess of net realizable value. Raw materials are valued at
the lower of average cost or market.



                                       25
<PAGE>   26


PROPERTY, PLANT AND EQUIPMENT

Property, Plant and Equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the respective assets as
follows: buildings 15 to 30 years; machinery and equipment 3 to 10 years; and
demonstration and test equipment 5 years.

The cost of maintenance and repairs is charged to expense as incurred. Renewals
and betterments are capitalized. Applicable asset and accumulated depreciation
accounts are reduced for the sale or other disposition and the resulting gain or
loss is included in the Consolidated Statements of Operations.

IMPAIRMENT OF LONG LIVED ASSETS

In the event that facts and circumstances indicate that the cost of property,
plant and equipment may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down is required. An impairment would then be recognized
for the difference between the assets estimated fair value and carrying value.

In fiscal year 1998, a charge of $1.3 million was recorded in the UK operation
for the impairment of plant and equipment.

INCOME TAXES

The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized by
applying enacted statutory tax rates, applicable to future years, to temporary
differences between the tax bases and financial statement carrying values of the
Company's assets and liabilities. A valuation allowance is provided where it is
more likely than not that deferred tax assets will not be realized.

STOCK-BASED COMPENSATION

The Company measures compensation expense for employee and director stock
options as the aggregate difference between the market and exercise prices of
the options on the date that both the number of shares the grantee is entitled
to receive and the purchase price are known. Pro-forma information relating to
the fair value of stock-based compensation is presented in Note 10 to the
Consolidated Financial Statements.

EARNINGS/(LOSS) PER SHARE

Basic earnings/(loss) per common share is computed by dividing net income/(loss)
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings/(loss) per share is computed by
dividing net income/(loss) available to common shareholders by the
weighted-average number of common shares outstanding during the period adjusted
for the number of shares that would have been outstanding if dilutive potential
common shares resulting from the exercise of stock options had been




                                       26
<PAGE>   27

issued. The diluted earnings/(loss) per share does not assume the exercise of
stock options that would have an antidilutive effect on earnings/(loss) per
share.

The Company's dilutive potential common shares consist of stock options. In
calculating diluted earnings per share, approximately 49,000 dilutive potential
common shares were included in fiscal year 2000. The number of shares used in
computing earnings per share is as follows:

                                         YEARS ENDED JUNE 30
                      ----------------------------------------------------
                         2000               1999                    1998
                      ---------           ---------             ----------
Basic                 8,436,000           8,346,000             8,174,000
Dilutive              8,485,000           8,346,000             8,174,000


PRESENTATION

Certain amounts in fiscal year 1999 have been reclassified to conform to the
fiscal year 2000 Financial Statement presentation.

NOTE 2            ACCOUNTS RECEIVABLE

                                            (In Thousands)
                                           2000        1999
                                          ------      ------
Contract Receivables, Billed Amounts      $7,077      $4,587
Other                                        282         151
                                          ------      ------
   Total                                  $7,359      $4,738
                                          ======      ======


Contract receivables include amounts under long-term contracts and subcontracts
principally with the U.S. Government or its contractors.

During fiscal year 1996, the Company submitted a claim for contract adjustment
under the Economic Price Adjustment ("EPA") provisions of a major contract
seeking approximately $950,000. The value of the claim was included as a
component of contract value for purposes of revenue recognition and accordingly
was included in costs and estimated earnings in excess of billings on completed
contracts at June 30, 1998. During the fourth quarter of fiscal year 1999, a
settlement was agreed to on all claims in the form of a $15,000 sum payable to
the Company. This settlement resulted in a $935,000 charge to earnings during
the fourth quarter of fiscal year 1999.

During fiscal year 1997, the Company filed a notice of arbitration against
Teliti Company Sdn Bhd in the Regional Centre for Arbitration in Kuala Lumpur,
Malaysia. The Company sought $1.3 million for breach of contract of which
approximately $500,000 was included in costs and estimated earnings in excess of
billings on uncompleted contracts at June 30, 1997. During the fourth quarter of
fiscal year 1998, the Regional Centre for Arbitration awarded the Company a
settlement of $400,000 including $100,000 previously advanced to the Company.
This settlement resulted in a $200,000 charge to earnings during the fourth




                                       27
<PAGE>   28


quarter of fiscal year 1998. Also, during fiscal year 1997, the Company, as a
subcontractor, initiated a lawsuit in Florida State court against Raytheon
Training, Inc., the prime contractor successor to Hughes Training, Inc., under
the Army's Battle Labs Reconfigurable Simulator Initiative ("BLRSI") program.
This litigation sought recovery of approximately $191,000 in unpaid invoices and
approximately $98,000 as a settlement of the termination for convenience of the
subcontract. These amounts were included in accounts receivable at June 30,
1997. Raytheon submitted a counterclaim in the amount of approximately $1.2
million. During the first quarter of fiscal year 1999, the parties agreed to a
settlement of all claims in the form of a $150,000 sum payable to the Company.
This settlement resulted in a $139,000 charge to earnings during the fourth
quarter of fiscal year 1998.

NOTE 3    INVENTORIES

                       (In Thousands)
                      2000        1999
                     ------      ------
Work in Process      $   89      $  477
Raw Materials         2,470       3,834
                     ------      ------
   Total             $2,559      $4,311
                     ======      ======


Work in Process Inventory is valued using the specific identification cost
method, but not in excess of net realizable value. Raw materials are valued at
the lower of average cost or market.

NOTE 4    PROPERTY, PLANT AND EQUIPMENT

                                            (In Thousands)
                                        2000           1999
                                      --------       --------
Land                                  $  2,216       $  2,216
Buildings                               20,883         20,659
Machinery and Equipment                 20,106         25,089
Demonstration and Test Equipment         8,914          8,912
                                      --------       --------
   Total                                52,119         56,876
Less Accumulated Depreciation          (36,643)       (38,603)
                                      --------       --------
   Total                              $ 15,476       $ 18,273
                                      ========       ========


Repairs and maintenance expense for the fiscal years ended June 30, 2000, 1999
and 1998 were $1,092,723, $582,000 and $844,000, respectively.



                                       28
<PAGE>   29


NOTE 5    ACCRUED EXPENSES AND OTHER

                                 (In Thousands)
                                2000        1999
                               ------      ------

Compensation                   $  321      $1,069
Vacation                          844         898
Incentive Plans                   561          --
Contract Loss Provisions          162       1,491
Lockheed Novation Payable       1,199       1,733
Other                             782       2,188
                               ------      ------
   Total                       $3,869      $7,379
                               ======      ======


On December 10, 1998, the UK operation entered into a Novation Agreement with
Lockheed Martin ASIC (Lockheed). Under the agreement, the UK operation assigned
all rights and obligations under a certain contract to Lockheed. The terms of
the novation permit the UK operation to extend payments, already owing to
Lockheed, to monthly installments through December 2000. The total outstanding
due to Lockheed is approximately $1.2 million and $2.9 million as of June 30,
2000 and 1999, respectively.

NOTE 6    EMPLOYEE BENEFIT PLANS

The Company has a savings and investment plan, as well as a 401K plan
(established in fiscal year 1999), which cover all employees. Employer
contributions are based on a percentage of employee contributions and certain
other restrictions as defined in the plan documents. In addition, the Company
may also make discretionary contributions at the end of the plan year. Employer
contributions of approximately $420,000, $421,000 and $517,000 were expensed in
the fiscal years ended June 30, 2000, 1999 and 1998, respectively.

Prior to fiscal year 2000, the Company had a profit sharing plan, which covered
all employees who worked in excess of 1,000 hours per year. Minimum
contributions were based on income before income taxes, subject to limitations
based on employee compensation and certain other restrictions defined in the
plan document. Contributions of approximately $161,000 and $424,000 were
expensed in the fiscal years ended June 30, 1999 and 1998, respectively.

NOTE 7    DEBT

On June 24, 1999, the Company entered into a revolving credit facility ("Credit
Facility") with Mellon Bank N.A, totaling $12.5 million and expiring on June 24,
2003. Proceeds from the Credit Facility were used to pay the outstanding balance
($6.8 million at June 24, 1999) under the Company's loan facility with its
previous primary lender. Available borrowings, which are based on a formula of
receivables and property, as defined in the Credit Facility, were approximately
$7.4 million at June 30, 2000. There was no outstanding balance under the Credit
Facility as of June 30, 2000.




                                       29
<PAGE>   30


Interest is payable monthly, in arrears, at a rate defined in the credit
facility (11.5% at June 30, 2000.) The Company is required to pay certain fees
on a quarterly basis as calculated by the bank. The unused line fee is equal to
 .50% per annum of the average daily unused balance. The agreement includes a
letter of credit fee equal to .75% per annum and a standby letter of credit fee
equal to 1.5% per annum. There were no outstanding letters of credit at June 30,
2000.

The Credit Facility includes certain covenants related to, among other things,
working capital, tangible net worth, net income, cash flow and capital
expenditures. In addition, the Company is not permitted to pay dividends and
substantially all of the assets of the Company are pledged as collateral for the
Credit Facility.

The Credit Facility includes a subjective acceleration clause as well as a
lockbox requirement under the control of the lender, whereby collections of
trade receivables are used to immediately reduce the balance of the Credit
Facility.

The Company's former loan facility, as amended, with its previous lender, was
due to expire in October 1999. The Company had no new borrowings under the
facility during fiscal year 1999 and made payments totaling approximately $4.3
million prior to the refinancing of the outstanding balance of $6.8 million on
June 24, 1999.

Under the former loan facility, interest was payable monthly, in arrears, at a
rate defined in the agreement (ranging from 7.19% to 10.62% during fiscal year
1999). The Company was also required to pay fees on an annual basis as
calculated by the lender. The revolving credit commitment fee was equal to .25%
per annum on the total outstanding balance. The standby letter of credit fee was
equal to 1% per annum plus issuance costs.

NOTE 8    INCOME TAXES

The domestic and foreign components of income/(loss) before income taxes are
presented below for the years ended June 30 (in thousands):

                                 2000          1999           1998
                              --------      --------       --------
Continuing Operations:
Domestic                      $  3,389      $ (1,883)      $ (6,687)
Foreign                             --        (2,734)        (7,917)
                              --------      --------       --------
   Total                         3,389        (4,617)       (14,604)
                              --------      --------       --------
Discontinued Operations:
Domestic                            --            --           (569)
                              --------      --------       --------
   Total                      $  3,389      $ (4,617)      $(15,173)
                              ========      ========       ========


                                       30
<PAGE>   31


The components of the benefit for income taxes are as follows for the years
ended June 30 (in thousands):

                                    2000         1999          1998
                                    -----      -------       -------

Current:
Federal                             $  --      $    --       $(4,419)
State                                  --           --            --
                                    -----      -------       -------
   Subtotal                            --           --        (4,419)
                                    -----      -------       -------
Deferred:
Federal                                --       (1,171)        1,929
State                                  --          100           133
                                    -----      -------       -------
   Subtotal                            --       (1,071)        2,062
                                    -----      -------       -------
      Benefit for Income Taxes      $  --      $(1,071)      $(2,357)
                                    =====      =======       =======


The benefit for income taxes is included in the Consolidated Statements of
Operations as follows for the years ended June 30 (in thousands):

                                    2000         1999          1998
                                    -----      -------       -------
Continuing Operations               $  --      $(1,071)      $(2,195)
Discontinued Operations                --           --          (162)
                                    -----      -------       -------
   Total                            $  --      $(1,071)      $(2,357)
                                    =====      =======       =======


The Company has cumulative federal net operating loss carryforwards of
approximately $5.4 million, which expire in 2013 and 2018. In addition, the
Company had available at June 30, 2000 cumulative net operating loss
carryforwards of $8.5 million for Florida state income tax purposes, which
expire in 2013 and 2014.



                                       31
<PAGE>   32


The tax effects of the primary temporary differences giving rise to the
Company's deferred tax assets and liabilities are as follows for the years ended
June 30 (in thousands):
<TABLE>
<CAPTION>

                                                              2000                        1999
                                                        -------------------      -----------------------
                                                        ASSET     LIABILITY       ASSET        LIABILITY
                                                        -----     ---------      -------       ---------
<S>                                                   <C>           <C>          <C>           <C>
Revenue Recognized on Completed Contract for
  Tax Return and on Percentage of Completion for
  Financial Reporting                                 $    --       $     8      $   287       $    --
Federal Operating Loss Carryforwards                    1,825            --        3,942            --
Federal Tax Credit Carryforwards                          393            --          393            --
State Tax Loss Carryforwards                              469            --          597            --
Difference between Book and Tax Depreciation               --            10           --           445
Capitalized Bid and Proposal Expense                      651            --          393            --
Accruals Not Currently Deductible                       1,062            62          401            62
                                                      -------       -------      -------       -------
   Subtotal                                             4,400            80        6,013           507
Valuation Allowance                                    (4,382)           --       (5,568)           --
                                                      -------       -------      -------       -------
      Total                                           $    18       $    80      $   445       $   507
                                                      =======       =======      =======       =======
</TABLE>


A valuation allowance provided at June 30, 2000 and 1999 relates primarily to
federal and state net operating loss carryforwards which are subject to
uncertainty as to their ultimate realization.

These deferred tax assets and liabilities are included in/or classified as
follows on the Consolidated Balance Sheets for the years ended June 30 (in
thousands):

                                   2000      1999
                                   ----      ----
Prepaid Expenses and Other         $ 18      $445
Accrued Expenses and Other         $ --      $ --
Deferred Income Tax Liability      $ 80      $507


Differences between the statutory U.S. Federal Income Tax rate and the effective
income tax rate reported in the financial statements are as follows for
continuing operations for the years ended June 30 (in thousands):
<TABLE>
<CAPTION>

                                                     2000         1999            1998
                                                    ------       ------          ------
<S>                                                 <C>          <C>             <C>
Federal Statutory Rates                             34.0%        (34.0%)         (34.0%)
Decrease/(Increase) in Taxes Resulting From:
   State Income Taxes (after deducting
      Federal Income Tax Benefit)                    1.3%          1.4%           (0.4%)
Valuation Allowance                                (34.9%)        13.5%           18.4%
Other                                                (.4%)        (4.1%)           1.0%
                                                   ------        ------          ------
      Total Benefit for Income Taxes                  --         (23.2%)         (15.0%)
                                                   ======        ======          ======
</TABLE>


The tax benefit realized from the exercise of stock options was immaterial in
fiscal years 2000, 1999 and 1998. These tax benefits were credited to Capital in
Excess of Par.


                                       32
<PAGE>   33


NOTE 9    FINANCIAL INSTRUMENTS

CONCENTRATIONS OF CREDIT RISK

Financial instruments, which potentially subject the Company to concentrations
of credit risk consist principally of accounts receivables from major defense
prime contractors and U.S. government agencies which minimizes the Company's
credit risk. The Company generally does not require collateral or other security
to support customer receivables.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their fair values because of the
short maturity of these instruments. The fair value of the Company's debt
approximates fair value due to the variable nature of the interest rate on the
debt.

NOTE 10   STOCK COMPENSATION

The Company has several stock-based compensation plans, which are described
below. The Company's Organization and Compensation Committee administers all the
stock benefit plans of the Company. The Company applies APB Opinion No. 25 and
related Interpretations in accounting for its plans. Since stock option exercise
prices are equal to the fair market value of the stock on the date of grant for
its fixed stock option plans and equal to 85% of the fair market value on the
date of exercise for stock issued under the employee stock purchase plans,
compensation cost is not required to be recognized in the Company's Consolidated
Statements of Operations. However, had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value of the
options at the grant dates for awards under those plans consistent with the
method of SFAS No. 123, the Company's net income/(loss) and net income/(loss)
per share for fiscal years 2000, 1999 and 1998 would have been changed to the
pro-forma amounts indicated below (in thousands, except per share data):

                                           2000         1999           1998
                                         --------     --------      ---------
Net Income/(Loss)                        $  3,215     $ (4,027)     $ (13,111)
Net Income/(Loss) Per Share-Basic        $   0.38     $  (0.48)     $   (1.60)
Net Income/(Loss) Per Share-Diluted      $   0.38     $  (0.48)     $   (1.60)


In accordance with FAS Statement 123, "Accounting for Stock-Based Compensation",
the pro-forma calculations do not include the effects of options granted prior
to fiscal year 1996. As such, the impact is not necessarily indicative of the
effects on reported net income in future years.



                                       33
<PAGE>   34


The fair value of options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:

                                 2000          1999          1998
                               -------       -------       -------
Expected Dividend Yield          0.00%         0.00%         0.00%
Risk-free Interest Rate          5.49%         4.61%         5.36%
Expected Volatility             41.59%        49.10%        45.70%
Expected Life (in years)          6             3            4.6


There were 215,000, 65,586 and 335,000 options granted during fiscal years 2000,
1999 and 1998, respectively, with weighted average fair values of $1.80 in 2000,
$2.29 in 1999 and $3.67 in 1998.

Under the Company's 1998 Stock Incentive Plan, directors, officers and certain
key employees may purchase the Company's Common Stock at 100% of the fair market
value of the shares on the date of grant. Vesting of options is determined by
the Board of Directors. Generally, options granted based on performance in the
previous fiscal year are exercisable on the date granted. Options granted to
provide an incentive for future performance are exercisable one year from the
date granted. All options expire ten years from the date granted. There were
600,000 shares reserved for issuance under the 1998 Plan. There were 185,000,
60,586 and 175,000 options granted under the plan during fiscal years 2000, 1999
and 1998, respectively.

Under the Company's 1986 and 1991 Stock Incentive Plans, directors, officers and
key employees may purchase the Company's Common Stock at 100% of fair market
value of the shares on the date of the grant. Unless the Board of Directors
determines otherwise, 20% of the options granted under the Plan will be
exercisable one year from the date the option is granted. An additional 20% will
be exercisable each year thereafter. All options expire upon the earlier of 10
years and 30 days from date of grant or, with respect to shares covered by such
options, five years from the date the option first became exercisable. There
were 607,000 shares reserved for issuance under the 1986 Plan and 457,162 shares
reserved for issuance under the 1991 Plan. The 1986 Plan expired in 1996. No
additional options can be granted pursuant to this Plan. There were 30,000,
5,000 and 160,000 options granted under the 1991 Plan during fiscal years 2000,
1999 and 1998, respectively. A summary of stock option transactions for the
fiscal years ended June 30, 2000, 1999 and 1998 are as follows:



                                       34
<PAGE>   35


                                 SHARES UNDER    WEIGHTED AVERAGE
                                    OPTION        EXERCISE PRICE
                                 ------------    ----------------

Balance at June 30, 1997            909,773          $10.41
Options Granted                     335,000            3.32
Options Exercised                    (7,337)           2.19
Options Terminated                 (210,400)          10.69
                                 ----------          ------

Balance at June 30, 1998          1,027,036            8.02
Options Granted                      65,586            2.29
Options Exercised                    (2,000)           2.13
Options Terminated                 (297,554)          10.17
                                 ----------          ------

Balance at June 30, 1999            793,068            6.75
Options Granted                     215,000            3.71
Options Exercised                    (3,400)           2.13
Options Terminated                  (94,195)          10.77
                                 ----------          ------

Balance at June 30, 2000            910,473          $ 6.16
                                 ==========          ======


Options exercisable were 735,473 at June 30, 2000, 603,798 at June 30, 1999 and
638,136 at June 30, 1998.

Stock options outstanding at June 30, 2000 are summarized as follows:
<TABLE>
<CAPTION>
                                   WEIGHTED AVERAGE    WEIGHTED      WEIGHTED
     RANGE OF         NUMBER          REMAINING         AVERAGE       NUMBER        AVERAGE
 EXERCISE PRICES   OUTSTANDING     CONTRACTUAL LIFE  EXERCISE PRICE EXERCISABLE  EXERCISE PRICE
 ---------------   -----------     ----------------  -------------- -----------  --------------
<S>                   <C>              <C>               <C>           <C>          <C>
$  1.15 -  2.30       35,286           7 years           $ 1.88        35,286       $   1.88
$  2.30 -  3.45      343,937           7 years           $ 3.09       263,937       $   3.06
$  3.45 -  4.60      235,000           9 years           $ 3.83       140,000       $   3.99
$  4.60 -  5.75       40,000           1  year           $ 5.50        40,000       $   5.50
$  9.20 - 10.35       33,000           6 years           $ 10.00       33,000       $  10.00
$ 10.35 - 11.50      223,250           5 years           $ 11.42      223,250       $  11.42
</TABLE>


The Company currently maintains an Employee Stock Purchase Plan which is
intended to provide eligible employees with an opportunity to purchase the
Company's Common Stock through payroll deductions at eighty-five percent of the
market price on specified dates. The Stockholders approved the 1999 Employee
Stock Purchase Plan during fiscal year 1999 reserving 360,000 shares for
issuance under this plan. In prior years, the Company maintained several
Employee Stock Purchase Plans, which were the same in all respects to the
current plan, including the number of shares reserved. Shares issued under the
previous Employee Stock Purchase plans during fiscal years ended June 30, 2000,
1999, and 1998, were 38,291, 59,349 and 79,244, respectively. The fair value of
shares issued during fiscal years 2000, 1999 and 1998 were $0.94, $0.78 and



                                       35
<PAGE>   36


$0.91 per share, respectively. The fair value of these shares was estimated
using a Black-Scholes Option pricing model with the following weighted average
assumptions for fiscal years:

                                 2000          1999          1998
                                ------        ------        ------
Expected Dividend Yield          0.00%         0.00%         0.00%
Risk-free Interest Rate          5.49%         4.65%         5.49%
Expected Volatility             41.59%        49.10%        46.80%
Expected Life (in months)         6             3             6


The Company has available 1,000,000 authorized and unissued shares of $0.10 par
value Preferred Stock. Shares may be issued from time to time in one or more
series, each series having such special rights, privileges and preferences as
may be determined by the Board of Directors at the time of issuance.

On August 27, 1996, the Board of Directors declared a dividend distribution of
one Right (a "Right") for each outstanding share of the Company's Common Stock
to stockholders of record at the close of business on September 17, 1996. Each
Right entitles the registered holder to purchase from the Company one
one-thousandth of a share (a "Unit") of Series B Junior Participating Preferred
Stock, $0.10 par value per share at a purchase price of $40.00 per Unit, subject
to adjustment. The description and terms of the Rights are set forth in a Rights
Agreement dated August 27, 1996 between the Company and Mellon Bank, N.A. as
Rights Agent, as amended (the "Rights Agreement"). On August 9, 2000, the Board
of Directors terminated the Rights Agreement and as required under the Rights
Agreement on September 1, 2000, stockholders of record at the close of business
on August 9, 2000 received $0.01 for each Right held.

During fiscal year 1998, the Board of Directors and Stockholders approved a
Director Equity Compensation Plan. Under the Plan, the members of the Company's
Board of Directors shall receive unrestricted shares of the Company's Common
Stock in lieu of 50% of the otherwise payable directors' fees. A total of 75,000
shares of Common Stock were reserved for issuance under the Plan. During fiscal
year 2000, the Board of Directors approved an additional 50,000 shares of the
Company's Common Stock for issuance under the Plan. During fiscal years 2000,
1999 and 1998, 27,211, 32,558 and 26,670 shares, respectively, were issued under
this Plan. Additionally, during fiscal year 1998 the Board of Directors approved
an Employee Incentive Plan, whereby the Board granted 107,100 unrestricted
shares of the Company's common stock to employees who were not officers of the
Company.

On June 15, 1998, the Company entered into a Stock Purchase Agreement with its
Chief Executive Officer (CEO). In connection with this agreement, the CEO
purchased 50,000 shares of common stock. The CEO paid $10,000 cash and issued a
Promissory Note to the Company in the amount of $146,250 in payment of the
shares. The Promissory Note bears an interest rate of 5.58% and is payable
together with interest on June 15, 2001.



                                       36
<PAGE>   37


NOTE 11   BUSINESS SEGMENT INFORMATION

Due to the sale of the vending operation during fiscal year 1998, the Company
operates in one segment training. This segment includes the design and
manufacture of training simulators.

SALES BY CLASS OF CUSTOMER

                                                     (In Thousands)
                                              2000         1999         1998
                                            -------      -------      -------
U.S. Department of Defense
   Direct                                   $ 4,562      $ 5,734      $ 7,067
   Subcontract                               36,314       35,696       32,504
                                            -------      -------      -------
      Total U.S. Department of Defense       40,876       41,430       39,571
                                            -------      -------      -------
Foreign Governments                              --        5,147       11,663
Foreign Commercial                               --        2,099          854
Other                                            --           --          530
                                            -------      -------      -------
      Total Foreign and Other                    --        7,246       13,047
                                            -------      -------      -------
      Total Sales                           $40,876      $48,676      $52,618
                                            =======      =======      =======


Export Sales from the U.S. were not material for the fiscal years ended June 30,
2000, 1999 and 1998. Export sales do not include Foreign Military Sales through
U.S. Government agencies and prime contractors of $416,000, $911,000 and
$1,540,000 in the fiscal years ended June 30, 2000, 1999 and 1998, respectively.

Since a substantial portion of the Company's revenues is attributable to
long-term contracts with various government agencies, any factor affecting
procurement of long-term government contracts, such as changes in government
spending, cancellation of weapons programs and delays in contract awards could
have a material impact on the Company's financial condition and results of
operations.





                                       37
<PAGE>   38


SALES BY GEOGRAPHIC AREA

                                                (In Thousands)
                                  UNITED         EUROPE AND
                                  STATES         MIDDLE EAST       CONSOLIDATED
                                  ------         -----------       ------------

Revenues
2000                            $ 40,876         $     --           $ 40,876
1999                              41,439            7,237             48,676
1998                              39,707           12,911             52,618

Operating Income/(Loss)
2000                               3,985               --              3,985
1999                              (1,942)          (1,932)            (3,874)
1998                              (5,777)          (7,998)           (13,775)

Long-Lived Assets
2000                              15,476               --             15,476
1999                              18,273               --             18,273
1998                              20,667              327             20,994


NOTE 12   SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

                                      (In Thousands Except Per Share Data)
                                   SEPTEMBER   DECEMBER       MARCH       JUNE
2000                                   30         31            31         30
----                               ---------   --------      -------    -------
Net Sales                           $ 10,188   $ 11,058      $ 9,888    $ 9,742
Gross Profit                           2,963      3,668        3,930      2,929
Operating Income                         898      1,241        1,459        387
Net Income                               573      1,058        1,310        448
Income Per Common Share -
   Basic and Assuming Dilution
      Basic                             0.07       0.13         0.16       0.05
      Dilutive                          0.07       0.12         0.15       0.05


     As a result of the periodic review of estimated costs at completion and
     consideration of changes in facts and circumstances, revisions were made
     to the estimated cost to complete in the second and third quarters of
     fiscal year 2000 to certain contracts. Gross margin adjustments on
     contracts resulted in additional income of approximately $1.0 million
     during the third quarter and a reduction to income of approximately
     $200,000 during the second quarter of fiscal year 2000.



                                       38
<PAGE>   39

<TABLE>
<CAPTION>

                                        (In Thousands Except Per Share Data)
                                   SEPTEMBER       DECEMBER         MARCH          JUNE
1999                                   30             31              31            30
----                                --------       --------       --------       --------
<S>                                 <C>            <C>            <C>            <C>
Net Sales                           $ 10,411       $ 13,968       $ 10,053       $ 14,244
Gross Profit                           2,424          3,489          3,350          2,864
Operating Loss                        (2,323)           (85)          (588)          (878)
Net Loss                              (1,784)          (452)          (934)          (376)
Loss Per Common Share -
   Basic and Assuming Dilution         (0.21)         (0.05)         (0.11)         (0.05)
</TABLE>


The quarterly results above include charges of $1.2 million, $0.7 million, $1.3
million and $0.3 million for the quarters ended September 30, 1998, December 31,
1998, March 31, 1999 and June 30, 1999, respectively, relating to Non-Recurring
Expenses. (See Note 14 to the Consolidated Financial Statements.)

As a result of the periodic review of estimated costs at completion and
consideration of changes in facts and circumstances, revisions were made in the
estimated costs to complete in the third and fourth quarters of fiscal year 1999
to certain contracts. Gross margin adjustments on contracts resulted in
additional income of approximately $1.0 million and $600,000 during the third
and fourth quarters of fiscal year 1999, respectively.

Additionally, the Company incurred a charge in the quarter ended June 30, 1999
of approximately $935,000 relating to a settlement of a claim. (See Note 2 to
the Consolidated Financial Statements.)

NOTE 13   COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease certain equipment under operating leases.
Future minimum lease payments under all non-cancelable operating leases as of
June 30, 2000 are as follows:

                                                         (In Thousands)
                                                         --------------
2001                                                         $ 28
2002                                                           20
2003                                                            9
Remaining Years                                                --
                                                             ----
Total Minimum Lease Payments                                 $ 57
                                                             ====


Rent expense under all operating leases was approximately $456,000, $970,000 and
$1,142,000 for the fiscal years ended June 30, 2000, 1999 and 1998,
respectively.

The Company is party to various legal proceedings arising from normal business
activity. Management believes that the ultimate resolution of these matters will
not have an adverse material effect on the Company's financial condition or
results of operations.



                                       39
<PAGE>   40


NOTE 14   NON-RECURRING EXPENSES

During the first quarter of fiscal year 1999, the Board of Directors announced
the approval of a plan to wind-down and discontinue the UK operation. The UK
operation wind-down was completed in May 1999. In addition, on September 30,
1998, the Company relocated its corporate headquarters staff and Instructional
Systems Development Group from Wayne, Pennsylvania to the Company's principal
Simulation Design and Production Center in Orlando, Florida. As a result of the
efforts to wind-down the UK operation and the relocation of the corporate
headquarters, the Company recorded non-recurring charges of approximately $3.5
million (after the effect of writing off the UK operation's cumulative
translation adjustment of $267,000) in fiscal year 1999. These charges primarily
relate to employee termination benefits and lease termination costs.

The following table sets forth the details and the cumulative activity in the
various accruals associated with the wind down of the UK operation and
relocation of the Wayne office in the Consolidated Balance Sheet at June 30,
1999 and June 30, 2000 (in thousands):

                                        FACILITY
                                         LEASE
                          SEVERANCE    OBLIGATION       OTHER         TOTAL
                          ---------    ----------       -----         -----

Incurred in 1999           $ 2,249       $ 1,408       $   212       $ 3,869
   Cash Reductions          (2,205)         (834)          (14)       (3,053)
   Non-Cash Activity            --            (7)          (40)          (47)
   Reversal                     (8)           --          (142)         (150)
                           -------       -------       -------       -------
      Balance 6/30/99      $    36       $   567       $    16       $   619

   Cash Reductions             (36)         (436)          (16)         (488)
   Non-Cash Activity            --            11            --            11
                           -------       -------       -------       -------
      Balance 6/30/00           --       $   142            --       $   142
                           =======       =======       =======       -------


NOTE 15   DISCONTINUED OPERATIONS

On November 25, 1997, the Company completed the sale of the fixed assets,
inventory and trade receivables of the Company's vending operation. Proceeds
from the sale of the vending operation were used to reduce the Company's debt.

The vending operation was accounted for as a discontinued operation beginning in
fiscal year 1997, and accordingly, the vending operations have been segregated
in the accompanying Consolidated Statements of Operations.

During fiscal year 1998 the Company recorded an additional provision for the
estimated loss on disposal of discontinued operations of $407,000, after tax.
The change in the estimated loss resulted primarily from additional costs
associated with the consummation of the sale of the fixed assets, inventory and
trade receivables of the vending operations.




                                       40
<PAGE>   41


ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURES

The Company has nothing to report under this item.



                                       41
<PAGE>   42


PART III

Pursuant to Instruction G (3) to Form 10-K, the information required in Items
10 - 13 (except for the information set forth at the end of Part I with respect
to Executive Officers of the Company) is incorporated by reference to the
Company's definitive proxy statement which is expected to be filed pursuant to
Regulation 14A on or before October 28, 2000.

PART IV

ITEM 14   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) (1) and (2)  Financial Statements

The financial statements filed as part of this Annual Report are listed in the
Index to Consolidated Financial Statements on page 21. Schedules other than
those so listed are omitted for the reason that they are either not applicable
or not required or because the information required is contained in the
consolidated financial statements or notes thereto.

     (3) Exhibits

EXHIBIT INDEX

EXHIBIT NO.    DESCRIPTION
-----------    -----------

3.1            Certificate of Incorporation (5)

3.2            By-Laws (2)

4.1            Form of Common Stock Certificate (5)

10.1*          Educational Computer Corporation 1981 Incentive Stock Option
               Plan (5)

10.2*          Educational Computer Corporation 1986 Incentive Stock Option
               Plan (5)

10.3*          Educational Computer Corporation 1986 Non-Qualified Stock
               Option Plan (5)

10.4*          ECC International Corp. 1991 Option Plan (4)

10.5*          Form of Stock Option Agreement for outside directors. (7)

10.6           Term Loan and Revolving Credit Agreement dated as of September
               20, 1994 by and among First Fidelity Bank, National Association
               and ECC International Corp. (7)



                                       42
<PAGE>   43


10.7           Guaranty and Surety Agreement dated as of September 20, 1994 to
               induce First Fidelity Bank, N.A., to make loans or other
               financial accommodations to ECC the UK operation Limited. (7)

10.8*          Form of Director's and Officer's Agreement to Defend and
               Indemnify. (3)

10.9           First Amendment dated as of April 6, 1995 to the Term and
               Revolving Credit Agreement dated as of September 20, 1994 by and
               among First Fidelity Bank, National Association and ECC
               International Corp. (10)

10.10          Overdraft Facility dated as of April 3, 1995 by and among ECC
               Simulation Limited and First Fidelity Bank, N.A., London Branch.
               (10)

10.11          Second Amendment dated as of October 13, 1995 to the Term and
               Revolving Credit Agreement dated as of September 20, 1994 by and
               among First Fidelity Bank, National Association and ECC
               International Corp. (6)

10.12          Lease between ECC International Corp and State of Wisconsin
               Investment Board for the premises 2900 Titan Row, Orlando,
               Florida. (6)

10.13          Lease between ECC Simulation Limited, ECC International Corp and
               G.J. King & Son Limited for the premises Unit 1 Home Farm
               Business Centre, Brighton, England. (6)

10.14          Lease between ECC Simulation Limited, ECC International Corp and
               G.J. King & Son Limited for the premises Unit 3A Home Farm
               Business Centre, Brighton, England. (6)

10.15          Lease between ECC Simulation Limited, ECC International Corp and
               G.J. King & Son Limited for the premises Unit 2 Home Farm
               Business Centre, Brighton, England. (6)

10.16*         ECC International Corp Executive Savings Plan. (6)

10.17          Third Amendment dated as of June 19, 1996 to the Term and
               Revolving Credit Agreement dated as of September 20, 1994 between
               ECC International Corp, ECC Simulation Limited and First Union
               National Bank. (Successor by merger to First Fidelity Bank,
               National Association) (1)

10.18          Rights Agreement dated August 27, 1996 between ECC International
               Corp and Mellon Bank, N.A. (9)

10.19          Amendment No. 1 to Rights Agreement dated as of March 25, 1997
               between ECC International Corp and Mellon Bank, N.A. (8)


                                       43
<PAGE>   44

10.20          Amendment dated as of November 13, 1997 to the Term and Revolving
               Credit Agreement dated as of September 20, 1994 by and among the
               Company and First Fidelity Bank, N.A. (11)

10.21          Amendment dated as of December 19, 1997 to the Term and Revolving
               Credit Agreement dated as of September 20, 1994 by and among the
               Company and First Fidelity Bank, N.A. (11)

10.22          Asset Purchase Agreement dated as of November 25, 1997 by and
               among Dixie-Narco, Inc., ECC International Corp and ECC Vending
               Corp. (12)

10.23*         Director Equity Compensation Plan (13)

10.24          Amendment dated as of January 30, 1998 to the Term and Revolving
               Credit Agreement dated as of September 20, 1994 by and among the
               Company and First Fidelity Bank, N.A. (14)

10.25          Amendment dated as of February 17, 1998 to the Term and Revolving
               Credit Agreement dated as of September 20, 1994 by and among the
               Company and First Fidelity Bank, N.A. (14)

10.26          Amendment dated as of March 16, 1998 to the Term and Revolving
               Credit Agreement dated as of September 20, 1994 by and among the
               Company and First Fidelity Bank, N.A. (14)

10.27          Amended and Restated Revolving Credit Note dated February 17,
               1998. (14)

10.28*         1998 Stock Incentive Plan. (16)

10.29*         Employment Agreement dated as of June 15, 1998 by and between the
               Company and James C. Garrett. (16)

10.30*         Stock Purchase Agreement dated as of June 15, 1998 by and between
               the Company and James C. Garrett. (16)

10.31*         Promissory Note dated as of June 15, 1998 by and between the
               Company and James C. Garrett. (16)

10.32*         Consulting Agreement dated as of April 1, 1998 by and between the
               Company and George W. Murphy. (16)

10.33*         Non-Competition and Non-Solicitation Agreement dated as of April
               1, 1998 by and between the Company and George W. Murphy. (16)



                                       44
<PAGE>   45


10.34          Forbearance Agreement and Amendment dated October 18, 1998 by and
               among the Company, First Union National Bank, ECC Simulation
               Limited, ECC International, Inc. and Educational Computer
               Corporation International, Inc. (19)

10.35          Agreement dated January 22, 1999 by and among the Company, First
               Union National Bank, ECC Simulation Limited, ECC International,
               Inc. and Educational Computer Corporation International, Inc.
               (19)

10.36          Amendment No. 2 to Rights Agreement dated as of March 12, 1999
               between the Company and Chase Mellon Shareholder Services,
               L.L.C., as successors to Mellon Bank, N.A. (18)

10.37          Loan and Security Agreement dated June 24, 1999 by and between
               the Company and Mellon Bank, N.A. (17)

10.38          1999 Employee Stock Purchase Plan. (21)

10.39          Agreement dated September 16, 1999 by and between the Company,
               Steel Partners II, L.P. and Warren G. Lichtenstein. (22)

10.40*         Amendment No. 1 to Employment Agreement dated August 9, 1999 by
               and between the Company and James C. Garrett. (22)

10.41*         Amendment and Restated Non-Competition and Non-Solicitation
               Agreement dated August 9, 1999 by and between the Company and
               James C. Garrett. (22)

10.42*         Employment Agreement dated August 9, 1999 by and between the
               Company and Glenn Andrew. (22)

10.43*         Non-Competition and Non-Solicitation Agreement dated August 9,
               1999 by and between the Company and Glenn Andrew. (22)

10.44*         Employment Agreement dated August 9, 1999 by and between the
               Company and Melissa Van Valkenburgh. (22)

10.45*         Non-Competition and Non-Solicitation Agreement dated August 9,
               1999 by and between the Company and Melissa Van Valkenburgh. (22)

21             Subsidiaries of the Registrant. (15)

23             Consent of PricewaterhouseCoopers, LLP.

27             Financial Data Schedule.


--------------
*              Management contract or other compensatory plan or arrangement.



                                       45
<PAGE>   46


(1)            Incorporated by reference to the Registrant's Annual Report on
               Form 10-K for the year ended June 30, 1996. (Commission File No.
               001-8988)

(2)            Incorporated by reference to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended December 31, 1996. (Commission
               File No. 001-8988)

(3)            Incorporated by reference to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1996. (Commission File
               No. 001-8988)

(4)            Incorporated by reference to the Registrant's Annual Report on
               Form 10-K for the year ended June 30, 1991. (Commission File No.
               001-8988)

(5)            Incorporated by reference to the Registrant's Annual Report on
               Form 10-K for the year ended June 30, 1993. (Commission File No.
               001-8988)

(6)            Incorporated by reference to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended December 31, 1995. (Commission
               File No. 001-8988)

(7)            Incorporated by reference to the Registrant's Annual Report on
               Form 10-K for the year ended June 30, 1994. (Commission File No.
               001-8988)

(8)            Incorporated by reference to the Registrant's Current Report on
               Form 8-K dated March 25, 1997. (Commission File No. 001-8988)

(9)            Incorporated by reference to the Registrant's Registration
               Statement on Form 8-A dated September 4, 1996. (Commission File
               No. 001-8988)

(10)           Incorporated by reference to the Registrant's Annual Report on
               Form 10-K for the year ended June 30, 1995. (Commission File No.
               001-8988)

(11)           Incorporated by reference to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended December 31, 1997. (Commission
               File No. 001-8988)

(12)           Incorporated by reference to the Registrant's Current Report on
               Form 8-K dated November 25, 1997. (Commission File No. 001-8988)

(13)           Incorporated by reference to Annex A of the Registrant's
               Definitive Schedule 14A filed with the SEC on October 27, 1997.
               (Commission File No. 001-8988)

(14)           Incorporated by reference to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1998. (Commission File
               No. 001-8988)

(15)           Incorporated by reference to the Registrant's Annual Report on
               Form 10-K for the year ended June 30, 1997. (Commission File No.
               001-8988)



                                       46
<PAGE>   47



(16)           Incorporated by reference to the Registrant's Annual Report on
               Form 10-K for the year ended June 30, 1998. (Commission File No.
               001-8988)

(17)           Incorporated by reference to the Registrant's Current Report on
               Form 8-K filed July 8, 1999. (Commission File No. 001-8988)

(18)           Incorporated by reference to the Registrant's Current Report on
               Form 8-K filed April 4, 1999. (Commission File No. 001-8988)

(19)           Incorporated by reference to the Registrant's Current Report on
               Form 8-K filed January 27, 1999. (Commission File No. 001-8988)

(20)           Incorporated by reference to the Registrant's Current Report on
               Form 8-K filed October 19, 1998. (Commission File No. 001-8988)

(21)           Incorporated by reference to the Registrant's Definitive Schedule
               14A filed on October 28, 1998. (Commission File No. 001-8988)

(22)           Incorporated by reference to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended September 30, 1999. (Commission
               File No. 001-8988)

(B)      REPORTS ON FORM 8-K

On August 24, 2000 the Company filed a current report on Form 8-K (Commission
File No. 001-8988) to report under Item 5 (Other Events) that on August 9, 2000,
the Board of Directors voted to terminate the Rights Agreement dated as of
August 27, 1996 between the Company and Mellon Bank, N.A. and to redeem all
outstanding rights thereunder.



                                       47
<PAGE>   48


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

ECC INTERNATIONAL CORP.

By:  /s/ MELISSA VAN VALKENBURGH
   ---------------------------------------------------
   Melissa Van Valkenburgh,
   Vice President, Finance

Date: SEPTEMBER 28, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated, by a majority of the Board of
Directors.

/s/ JAMES C. GARRETT                                )
----------------------------------------------      )
James C. Garrett, President, Chief Executive        )
  Officer and Principal Executive Officer           )
                                                    )
                                                    )
/s/ MELISSA VAN VALKENBURGH                         )
----------------------------------------------      )
Melissa Van Valkenburgh, Vice President, Finance    )
  and Principal Financial and Accounting Officer    )
                                                    )
/s/ BRUCE A. BEDA                                   )
----------------------------------------------      )
Bruce A. Beda, Director                             )
                                                    )
/s/ JULIAN DEMORA                                   )     September 28, 2000
----------------------------------------------      )
Julian Demora, Director                             )
                                                    )
/s/ JAMES HENDERSON                                 )
----------------------------------------------      )
James Henderson, Director                           )
                                                    )
                                                    )
/s/ JESSE KRASNOW                                   )
----------------------------------------------      )
Jesse Krasnow, Director                             )
                                                    )
/s/ WARREN LICHTENSTEIN                             )
----------------------------------------------      )
Warren Lichtenstein, Director                       )
                                                    )
                                                    )
/s/ THOMAS E. MCGRATH                               )
----------------------------------------------      )
Thomas E. McGrath, Director                         )
                                                    )
                                                    )
/s/ MERRILL A. MCPEAK                               )
----------------------------------------------      )
Merrill A. McPeak, Director                         )



                                       48